CNN: Stocks tank on Wall Street

[heyholetsgogrant]

Stocks tank on Wall Street

Major gauges tumble on oil prices and disappointing earning; Dow is down for the year.

By Jessica Seid, CNNMoney.com staff writer

January 20, 2006: 2:10 PM EST

NEW YORK (CNNMoney.com) - Blue chips led a selloff Friday afternoon, with the Dow Jones Industrial Average falling more than 160 points, as investors reacted to disappointing earnings from General Electric and Citigroup and a spike in oil prices.

The Dow Jones industrial average (down 156.40 to 10,724.31, Charts) tumbled 1.6 percent and as of mid-afternoon had given up its gains for the year. The broader S&P 500 index (down 18.68 to 1,266.36, Charts) lost 1.5 percent.

The Nasdaq composite (down 45.91 to 2,255.90, Charts) sunk 2 percent midway through the session.

Crude oil jumped $1.77 to $68.50 a barrel on concern over the latest audio tapes that surfaced Thursday warning of new al Qaeda attacks and ongoing concerns about a possible cutoff of supplies from Iran.

And Nigerian oil unions said Friday they would withdraw from facilities in the oil-rich delta region if violence persisted, raising more fears of supply disruption.

"Combine the name brand companies that have disappointed with a backdrop of higher energy prices and you get a Friday selloff," said Art Hogan, chief market strategist at Jefferies & Co.

Earnings focus

Shares of Dow component Citigroup (down $1.78 to $46.16, Research) sank over 3 percent after the bank said fourth-quarter earnings from continuing operations fell 3 percent.

GE (down $1.35 to $33.33, Research) reported fourth-quarter profit fell 46 percent, in line with Wall Street expectations, and raised the lower end of its 2006 guidance. But revenue for the quarter was below forecasts and shares fell 3.5 percent.

Motorola (Research) added to earnings worries. The world's second-largest mobile phone maker reported fourth-quarter earnings up about 86 percent from last year but indicated that first-quarter earnings and revenue will fall, sending shares down close to 7 percent.

Shares of Xilinx (down $2.30 to $27.49, Research) sunk more than 8 percent on news that the semiconductor maker posted a 26 percent rise in third-quarter profit but its forecast disappointed investors.

Supertex (down $11.15 to $32.10, Research) tumbled 25 percent after the semiconductor maker posted a higher third-quarter profit but fell short of Wall Street estimates.

Other chip stocks fell in sympathy, sending the Philadelphia Semiconductor index, or the SOX, down 3.5 percent. (For more on the tech sector, click here.)

In other news, shares of Google (down $30.58 to $405.87, Research) plummeted nearly 7 percent on news the Internet giant is fighting a subpoena from the Justice Department asking it to turn over search records in an effort to defend a child pornography law. (Full story.)

Shares of Ford (down $0.16 to $8.06, Research) fell 2 percent ahead of the automaker's announcement about its restructuring plan. (Full story.)

General Electric and Japan's Hitachi may have joined forces to make a $3.5 billion bid for nuclear-technology company Westinghouse Electric, according to a report in the Wall Street Journal.

And Albertsons (up $0.28 to $24.15, Research) said it received an offer from a consortium seeking to purchase the company and is negotiating with the group.

Market breadth was negative. On the New York Stock Exchange, losers beat winners more than two to one on volume of 1.4 billion shares. On the Nasdaq, decliners topped advancers by three to one on volume of 1.6 billion shares.

Consumer sentiment improved in early January on steady energy prices, better job conditions, and hefty stock gains in early 2006, according to the University of Michigan's report.

Treasury prices were flat, with the yield on the 10-year note at 4.37 percent. The yield on the 2-year note stood at 4.38 percent, indicating an inverted yield curve.

The yield curve, which refers to the slope of rates in the Treasury market, briefly inverted in late December when the two-year note yield exceeded the 10-year yield, a rare occurrence that often bodes badly for the economy.

The dollar edged lower against the euro and the yen.

COMEX gold fell $5.40 to $553.60 after hitting a 25-year high amid concerns about the economy, high oil prices and geopolitical tensions.

Asian markets ended virtually unchanged after a week of market slides due to the investigation into the high-flying Internet company Livedoor. European stocks ended lower after trading just below 4-1/2-year highs earlier in the session.

http://money.cnn.com/2006/01/20/markets/markets_newyork/index.htm?cnn=yes

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Man I am glad I do not own stocks....better start calling the far right conservatives to invade Oil rich countries to control the flow of oil and our oil based maket....Iran any one?

-Grant

[Destino]

I knew Google would take a hit. The government has put them in a situation in which they are going to take a hit no matter what they do.

[Kilmer17]

OUCH. Looks like Im eating Ramen Noodles tonight.

[portisizzle]

I knew Google would take a hit. The government has put them in a situation in which they are going to take a hit no matter what they do.

please explain???

[Destino]

please explain???

The government has gotten a subpoena for a weeks worth of google search records. They want it to investigate some porn law. The problem is the concern users may have over thier privacy.

Here is an article on what's going on. It's interesting to see how the tech companies are taking this. AOL is denying they gave the government the info, MSN is refusing to say exactly what they did, and Google for whatever reason decided to play it straight yes or no and chose no. Dumb on there part. Now they are screwed either way because the world is watching them.

[PleaseBlitz]

Silver lining: Probably will lower mortgage interest rates in the short term.

[iheartskins]

please explain???

Plus, Google's had some serious problems related to the way they expense options. It was posted today in the WSJ too.

[Destino]

Plus, Google's had some serious problems related to the way they expense options. It was posted today in the WSJ too.

Really? That's news to me, I'm going to look that up.

Also anyone think google stock can stay that high for long anyway? I've been thinking a drop is coming for a while.

[Thanos]

Great Depression 2007 on the way

[portisizzle]

Great Depression 2007 on the way

:doh: :doh: :doh:

and

:doh: one for the road.

[Destino]

Great Depression 2007 on the way

Not a chance. It would take a major world event to trigger something like that IMO.

[Thanos]

Not a chance. It would take a major world event to trigger something like that IMO.

Like Avian Bird Flu or an attack at the World Cup this summer?:cool:

[iheartskins]

Like Avian Bird Flu or an attack at the World Cup this summer?:cool:

You got something planned with the Guardians of the Galaxy?

[iheartskins]

Really? That's news to me, I'm going to look that up.

Also anyone think google stock can stay that high for long anyway? I've been thinking a drop is coming for a while.

Here's the article, Des:

http://online.wsj.com/article/SB113763917137950549.html

Google Stock-Sharing Plan

May Bite Investors

By GREGORY ZUCKERMAN

Staff Reporter of THE WALL STREET JOURNAL

January 19, 2006; Page C1

Google Inc.'s profits are climbing, its stock price has been soaring and analysts are upbeat on the Internet-search company's future.

But few investors are focusing on the growing number of restricted shares and options that Google is handing out to employees, which will emerge as a sizable expense in the next few years. That expense added up to a hefty $600 million or so as of Sept. 30 of last year, all of which will be charged against future earnings.

As Google's business grows and it courts employees in a competitive marketplace, it is picking up the pace of its issuance of "performance-based stock units," according to securities filings, a form of compensation that many investors overlook. Between March 31 and Sept. 30 of last year, Google gave out 498,000 units, a close cousin of stock options, which likely will convert into Google shares over a four-year period.

[Going Gaga]

The units are valued at the price of Google shares at the time they are granted. Since the average stock price was about $300, the units represent an expense of about $150 million. Because the units vest over four years, accounting rules require the company to count one-quarter of their cost as an expense each year. So, Google took just $8.9 million of expense for the units during the second and third quarters. The remaining cost will hit earnings over the next few years.

Google handed out virtually no stock units in the first quarter of 2005. But it gave out 154,000 stock units in the second quarter and 344,000 in the third period. The total outstanding grants, including those given out in the fourth quarter, will be disclosed when Google files its annual report in March. Google is on pace to give out more than one million of these share units a year. With the stock around $450, that means Google will be on the hook for an expense of about $450 million at this rate, most of it to be booked in future years.

It all comes on top of other looming employment-related expenses. Google handed out new stock options -- a form of compensation that has received much greater attention over the past year or so -- with a cost of approximately $300 million in the first nine months of 2005. And it reported $143 million in deferred stock-based compensation as of Sept. 30, stemming from options, restricted shares and other units issued to employees.

All in all, Google faced almost $600 million of the stock- and option-related employment expenses as of the end of the third quarter of last year.

"These are expenses yet to be recognized, and unless the employees who are incentivized generate more than enough revenue to cover the cost, there could be some earnings shortfall down the road," says Robert Willens, Lehman Brothers's tax and accounting analyst. "It's not an unusual method of compensation, but it's something investors need to be cognizant of."

To be sure, the cost will be spread out over a period in which Google's earnings likely will surge, though it likely still will represent a significant cost. Analysts estimate that Google earned about $1.5 billion in 2005, and will earn about $2.6 billion in 2006, according to Reuters Research.

"As we hire rapidly to scale up the company, it is natural to issue a larger number of stock awards than we would otherwise," says Steve Langdon, a Google spokesman. "The cost to the company of these stock awards occurs only over the periods the awards vest, which is when the employees earn the related benefit."

Edited to comply with Rule 10.